Relationship between financial statements in healthcare organizations

Tenet Healthcare Corporation

Tenet Healthcare Corp

This paper examines the financial statements of Tenet Healthcare Corporation, reviewing their important components and discussing their interrelationship.

Tenet's annual report for the year ending December 31, 2011 provides information on the firm's financial health. The balance sheets provide information about what the company owns and what it owes. The income statements provide information about how much money Tenet earned and spent, and the cash flow statements show information about the exchange of money between Tenet and other parties.

Tenet's Balance Sheet

Tenet's balance sheet provides detailed information about its assets, liabilities and shareholders' equity. Tenet's assets are what it uses to operate its business, while its liabilities and shareholders' equity are two sources that support those assets. Tenet's liabilities are amounts of money that it owes to others. Shareholders' equity is the amount of money invested in the company combined with retained earnings; together they represent a source of funding for Tenet.

At the end of the fiscal year 2011, Tenet's total assets amounted to $8.46 billion, down slightly from $8.5 billion in 2010. Tenet's cash and cash equivalents are down significantly, from $405 million in 2010 to $113 million in 2011. These figures also show up on the company's cash flow statement. Accounts receivable increased from $1.14 billion in 2010 to $1.27 billion in 2011. Total current assets also increased during this period.

Tenet's total current liabilities increased from $1.73 billion to $1.82 billion. Long-term debt increased by nearly $400 million, while total liabilities also increased from $6.68 billion to $6.95 billion.

Tenet's common and preferred stock remained unchanged, while the number of shares of common stock in treasury nearly doubled, due to their share repurchase program. The company purchased more than 81 million shares of stock for approximately $400 million. Total shareholders' equity declined from $1.77 billion to $1.42 billion. Tenet has not paid cash dividends on their common stock since 1994, nor do they intend to pay dividends in the foreseeable future. Their senior secured revolving debt agreement limits or prohibits the payment of cash dividends.

Tenet's Income Statement

Tenet's income statement shows how much revenue they earned over the two-year period from December 31, 2009 thru December 31, 2011, as well as expenses for the same period. Because of accrual accounting, the income statement does not necessarily coincide with the actual receipt and disbursement of cash. Tenet's income statement does not measure cash flow, it reports profitability. Tenet's EPS or earnings per share shows how much money shareholders would receive for each share of stock they own if the company distributed all of its net income for this fiscal year.

Net operating revenues increased over the two-year period, going from $8.32 billion in 2009 to $8.85 billion in 2011. Operating income also steadily increased during that time. Income taxes increased significantly, about fifteen-fold in 2010. Net income dropped substantially from $1.15 billion in 2010 to $94 million in 2011. Net income also shows up on the cash flow statement. EPS dropped from $2.31 in 2010 to $0.12 in 2011.

Tenet's Cash Flow Statements

Tenet's cash flow statements report the company's inflows and outflows of cash. The cash flow statements use information from Tenet's balance sheet and income statement. The first section of the cash flow statement analyzes Tenet's cash flow from net income. The statement starts by reconciling net income, as shown on the income statement, to the actual cash that Tenet received from or used in its operating activities. The statement does this by adjusting net income for any non-cash items, such as adding back depreciation expenses, and then adjusts for any cash that was used or provided by other operating assets and liabilities. Tenet's net cash provided by operating activities increased steadily over the two-year period, growing from $425 million in 2009 to $497 million in 2011.

Tenet's cash flows from its investing activities show its investment in and purchase of long-term assets. Tenet's net cash used in investing activities increased substantially from $125 million in 2009 to $503 million in 2011.

Tenet's cash flows from its financing activities show the flow of cash between Tenet and its owners and creditors. Tenet's negative numbers show that it is servicing debt and making stock repurchases. Tenet's net cash used in financing activities declined from $337 million in 2010 to $286 million in 2012. As mentioned earlier, their net cash and cash equivalents also declined during this period. Tenet's cash flows show both repayments of borrowing and proceeds of borrowing.